In Rural India, Manufacturing Is Booming

A Credit Suisse report says instead of plowing fields, men (and women) in rural India are increasingly moving toward manufacturing jobs. Shown, a flooded rice field being prepared for farming in front of chimneys of Kolaghat Thermal Power Plant near Kolkata.

When you think rural India, think factories and cell phones, rather than fields and bullock carts.

Rural India, says a Credit Suisse report, is no longer an agrarian economy whose fortunes are dependent upon an erratic monsoon. Rather, they are now increasingly tied to the national economic cycle, something they had been largely immune from so far, as it gradually shifts away from agriculture.

A decade ago, agriculture was about half of rural gross domestic product. Now that figure has dropped to about one-fourth.

“The transition from agriculture to industry and services has been very rapid in rural India over the past decade,” the report says. Instead of plowing fields, men (and women) in rural India are increasingly moving toward manufacturing jobs, which are now coming up more and more in rural India.

In 1978, 81% of rural males considered agriculture as their primary employment. In the financial year that began in April 2005 this number dropped to 67%, and, five years later, to 55%. The change seen in this five-year period is comparable to the that seen in the previous 27 years, the report showed. The trend is similar for female rural employment as well.

Much of the incremental job creation in manufacturing seems to be in construction and in services including trade (retail/wholesale) and community services.

Consider this: From 1999 to 2009, 75% of all new factories came up in rural India, and 70% of all manufacturing jobs were created there. As a result, 55% of India’s GDP from manufacturing comes from rural India, the report says.

In other words, urbanization in India is treading a different path from conventional migration, which usually means moving from villages to large cities. Villages are growing larger, merging together, moving away from agriculture, and thus being classified as towns.

Similarly, since the financial year that began in April 2000, per capita GDP in rural India has grown at a faster rate than in urban India.

This shift will ultimately play out in the consumption patterns in the country, which will be skewed toward goods that are priced cheaper and will driven by “rural urbanization” themes, including two-wheelers, building materials/paints, media, tobacco, footwear, healthcare, cheap personal products (such as toothpaste.)